Popular Tax Software and Trader Taxes

Popular tax software programs were never designed for the needs of active traders or serious investors. Therefore, they should never be used alone to fill out a Schedule D Form 8949!

What you need is a software program that:

imports the actual buy/sell transactions;

is able to match those buy/sell transactions properly;

allows you to make adjustments as necessary;

allows you to verify that everything is correct;

allows you to combine accounts from multiple brokers;

accurately calculates wash sales based on rules for taxpayers—not brokers.

Popular tax software programs like TurboTax® do none of the above!

Want proof? Please read on...

An active trader imported his trades directly from his broker into TurboTax®. There were no
errors due to missing cost basis and everything flowed perfectly into TurboTax®. Both his broker Gain/Loss statement and TurboTax® reported a net loss of $1,909.87, but in reality, he had a net gain of $3,392.01.

Basically TurboTax® took the broker provided G/L data verbatim, and there was absolutely no indication that anything was wrong!

Is it possible to fix the problem? Could he possibly enter his two open positions from the previous year into TurboTax® and then rematch everything? Not on your life, because such tax programs depend on the broker import data to do this for you. Unless he wants to remove all the imported transactions and manually enter all his trades, he simply has no way to accomplish this.

Add to that the fact that he now has no way to automatically calculate his wash sales. Yes, you may be able to flag a loss trade as a wash sale in TurboTax®, but who wants to scan their entire list of matched trades to see if there are any wash sales?

And what if you did not repurchase an equal number of shares as the loss trade?For example, what if you sold 1,000 shares at a loss of $1,000 and only bought back 200 shares within the 30 day window and held these shares open at year end? You certainly do not want to defer the entire $1,000 loss to next year, do you? The correct deferral is only $200. There is no way to easily
handle this in TurboTax®.

Example #1:

A certain trader at an online brokerage completed approximately 40 round trip trades in tax year 2006. This resulted in 209 trade records (buy/sell transactions) for the year due to partial fills.

After just a few clicks to connect to their online broker's website and importing their 2006 trade records into their "tax software", our active trader was confronted with the following error: "42 sales do not have a cost basis or date acquired entered."

So after importing only 209 trade records, 42 of them were not matched properly (no cost basis was found) by this popular tax software program.

At this point in time, our trader is provided absolutely no assistance to help him find out what is wrong, or most importantly, how to fix things. Incidentally, this trader started 2006 with only 4 open positions, and only 5 open positions at year end, so something is drastically wrong here.

Example # 2:

Now let's get a little more drastic. Another trader at the same online brokerage completed approximately 500 trades in tax year 2006. This resulted in 2,513 trade records (buy/sell transactions) for the year.

Did he fare any better?

A whopping 798 sales out of a total of 1,202 sales records were found to be missing matching purchases (no cost basis). And since this trader had no open positions going into the 2006 tax year, and only 2 open positions at year end, something is even more wrong here.

Made for the masses doesn't cut it! So right from the start, we can see that using such “made for the masses” tax tools doesn’t cut it when it comes to handling the needs of active traders, or even less active traders. Then why do so many online brokerages offer such tools in their tax centers?—We're not quite sure.

Manually enter your trades?Ok, so maybe we can enter our trades manually. Well most traders do not buy and sell in equal share increments. For example, what if you purchased 1000 shares of a stock on a certain day, then sold 300 shares one day later, 200 shares another day, then you bought another 500 shares a week later,
then you sold 700 shares two days later and finally you sold the last 300 shares a few days later?

How does all this divide up on Schedule D? And what about calculating wash sales? It boggles the mind just thinking about it. And wouldn't this defeat the whole purpose of an automated tax software program in the first place? So what is a trader to do?

TradeLog was designed for the needs of active traders.

TradeLog was designed by active traders, for active traders. But even the casual investor who has 40 or 50 trade records in a year can benefit as well.

TradeLog can import an entire year with just a few clicks and it does so from your online brokerage trade history report, not the inaccurate Gains/Losses report. It allows you to first enter any open positions from last year, and then it goes to work matching each and every trade with speed and precision.

But what if something is "out of whack" and gets mismatched? - No problem, TradeLog has an extensive suite of editing tools and powerful trade matching algorithms that make finding and correcting such things a breeze.

TradeLog helps active traders generate accurate tax reporting.

Please note:
This information is provided only as a general guide and is not to be taken as official IRS instructions.
Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice.
You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.